Yesterday I read an interesting article on the bloomberg site:
http://www.bloomberg.com/apps/news?pid= ... 5hxhuxW61g
The article title makes you think the subject primarily will be Benjamin Graham, the father
of "value investing". After an initial couple
of paragraphs that mention his outlook [he is several decades deceased] in a favorable manner, the article veers off to an irritating jumble
of P/E number comparisons that have no rhyme or reason. The first mention
of where the S/P 500 might end up is in paragraph 2:
Graham measured equities against a decade of profits to smooth out distortions, a method that shows the S&P 500 trading at 13.2 times earnings, according to data compiled by Yale University Professor Robert Shiller. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that level, the S&P 500 would sink another 27 percent.
The structure
of the paragraph implies that the article writers are using 13.2 as the current S&P 500 P/E. If you drop that value by 27% you get (13.2*.73 =) 9.64, and indeed 9.64 is "below 10". So this paragraph is self-coherent.
The next 80% portion
of the article is fairly decent, pointing out several big-name analysts who blew forecasts last year. In the close, the article switches back apparently to the independent "thoughts"
of the writers:
In the previous three economic contractions since 1929 that lasted as long as the current one -- the Great Depression, the oil shock in 1973-1975 and the 1981-1982 recession -- the S&P 500 bottomed only after the index fell to 8.74 times profit on average, based on data compiled by Yale’s Shiller.
To match those levels, the S&P 500 would have to fall 21 percent to 537.95, based on analysts’ profit estimates for 2009 that strip out the impact of non-operating charges such as investment losses and writedowns.
All I can say is WOW. First
of all, it is clear that whoever wrote this section has already forgotten what he/she wrote at the beginning .. now someone is talking about "fall 21 percent", whereas earlier it was "sink another 27 percent". Maybe Bloomberg's process involves two monkeys typing simultaneously in different parts
of an "article", and the editors don't care if monkey A knows what monkey B typed.
Secondly, it does not bother the person writing at this stage that Shiller uses "past earnings" that are reported earnings, while the new calculation is "future earnings" based on operating earnings. Utter, total garbage.
